can be found here. He mentions yours truly, but expands on the pros and cons to a degree I have not yet managed:

[Wilkes] suggests, among other things, that the Bank start targeting nominal economic growth (in other words GDP as we know it plus inflation). It is an intriguing idea: the Bank’s CPI target is narrow and specific; with inflation likely to bounce around for some time, markets, the risk is that market participants start to anticipate that the Bank will tighten policy before QE has really helped boost the economy. That anticipation could be as bad as the actual act of raising rates (or withdrawing QE) since banks change their lending rates to reflect expected changes in official monetary policy.

His concern:

is that any change to the monetary policy rules right now – even if it would actually improve it – could have the perverse effect of undermining peoples’ confidence in the Government’s determination to control inflation. This is a pragmatic rather than an ideological or pure economic concern: it takes years, if not decades, to persuade people that you’ve worked out a pretty reliable way to prevent prices getting out of control. The risk is that a change in remit would undo much of that good work – even if you were only changing the target to a better one.

This is a very good point, and one I was much more concerned with when writing my first and rather dismal piece about inflation in, ahem, autumn 2008.  It took years to get to this point, and if for a minute the markets think that you are changing targets to make life easier, then you might have hell to pay.

But as Ed’s previous post has argued, governments don’t benefit as much from inflation as everyone might think.  And it is not as easy to achieve as the conspiracy theorists think.


3 thoughts on “Ed Conway’s thoughts on nominal GDP growth targets

    1. I had seen that somewhere, but thanks for reminding me – onto the enormous pile which includes:

      rest of Greenspan
      2 bank speeches (ignoring Mervyn’s)
      Van Hosington The Debt Deflation Debate
      OECD on Preparing fiscal consolidation
      CBI, IoD and others on Tax

      oh, and the Budget.

      Death by economics – but thanks for this one. Though the odds on anyone taking up the idea still seem slight

    2. That is a quite brilliant post. I need to post a big link about it. Somewhat humiliatingly explains far better why the idea is better ….

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